News & Views

Episode 35: Top Consultants Forecast Site Selection Trends for 2018

January 8, 2018

So what does 2018 look like in terms of site selection? Will Amazon’s HQ2 search process be adopted by other companies? What will happen in the area of foreign direct investment? And how will the recently approved tax bill impact investment decisions?

“The Project” Podcast sits down with Mark Williams, President of the Strategic Development Group and Dennis Donovan, a Principal with WDG Consulting for their perspective on the year ahead. Both individuals are members of the Site Selectors Guild. They share interesting answers to some difficult questions in the first podcast of the new year.

We’re pleased to share two versions of this episode below:

Condensed version of the interview…Think of this as the “best of Mark and Dennis.” We’ve cut down the full interview to the most relevant 35 minutes of our discussion with these two consultants.

Full “uncut” version of the interview…A full hour of our time sitting down with Mark and Dennis for all of our listeners who just can’t get enough of the site selection world.

Patience Fairbrother (DCI): So to kick off the year, we sat down with two site selection consultants who are at the top of their game, and we asked them to look to the year ahead. Are they optimistic about 2018? What trends are they seeing in the site selection profession? And what was the impact of President Trump on corporate location decisions in the past year? They shared some interesting answers to these and other questions in our kickoff episode to 2018.

Andy: We’re delighted to share with you this special episode, Episode 35 of “The Project: Inside Corporate Location Decisions.” I’m Andy Levine of Development Counsellors International.

Patience: And I’m Patience Fairbrother, also with DCI, and Andy’s co-host of “The Project.” Andy, are you ready for another year of “The Project?”

Andy: Of course, of course. And we’ve already got some great companies booked for 2018, including an interview with Jason Hoff, president and CEO of Mercedes-Benz USA.

Patience: We’ll run that episode on Monday, January 22nd, but for this episode we had the chance to speak with two respected site selection consultants for their take on the year ahead. Mark Williams is founder and President of the Strategic Development Group based in Columbia, South Carolina, and Dennis Donovan is principal with WDG Consulting out of Bridgewater, New Jersey. Both are seasoned veterans and members of the Site Selection Guild.

Andy: Now, we’re doing something a little different with this episode. We’re offering two versions of this episode, a condensed, best of Mark and Dennis version, which we’ve cut down to about 35 minutes of the interview, you’re listening to this right now…

Patience: But if you’d like to listen to the full hour-long version, or Mark and Dennis uncut, it’s on our website at www.aboutdci.com/the-project-podcast. We’re all really busy, but trust me, it’s worth an hour of your time.

Andy: So welcome to Episode 34 of “The Project: Inside Corporate Location Decisions.” We’re joined by two outstanding site selection consultants today. Let me introduce you to each of them. We’re gonna start with Mark Williams. He’s president at Strategic Development Group, Inc. out of Columbia, South Carolina, which he started in 1999. Welcome, Mark.

Mark Williams (Strategic Development Group, Inc.): Thank you, Andy. Good to be here.

Andy: Great to have you on the program. Dennis Donovan is a principal within WDG, or Wadley Donovan Gutshaw Consulting, out of Bridgewater, New Jersey, which he started in 1992. Welcome, Dennis.

Andy: And I think you know my partner in crime and cohort, Patience Fairbrother. I think they’ll be able to distinguish your voice between the three of…

Patience: I think they can probably tell which one I am.

Andy: Sounds good. So we’re gonna talk about 2018. We’re gonna talk about the year ahead, and get some thoughts from each of these consultants about what the year looks like ahead, but first we want to mention that both of them are members of the Site Selectors Guild. This is the only association of the world’s foremost professional site selection consultants. Mark is chair of the guild, and Dennis is a board advisor of the guild.

Mark, you wanted to say a quick word about the guild itself and what it represents, just to set this for our listeners?

Mark: Well, the guild is a bit of a miracle of site selection consultants, mostly from the U.S., but from around the world that, about seven years ago, got together and decided they wanted to form what we believe is the only association in the world of site location consultants.

Andy: So you can’t talk about 2018 without reflecting and looking back at 2017. So I’ll put this one to you first, Dennis, here. So how would you characterize 2017 in terms of business for both your firm as well as for most of the guild?

Dennis: I’d say 2017 was a robust year in terms of corporate location activity, these are new facilities and expansions. And this really started, you know, after the Great Recession, took several years for companies to really get up to speed in terms of being in a position financially, and market…competitive-wise, marketplace-wise to commit to new investment for additional capacity. And so what we’ve seen is probably in about 2014, 2015, that uptick really started to become established, and now is increasing every year. So ’17 was a very good year. And I have to tell you that most of the expansion has been across geographies and across industry, so it’s deep and it’s strong.

Andy: Mark, you concur with Dennis’s thoughts?

Mark: I definitely concur. The Recession hangover has been dissipating, and 2017 was a banner year, I think for everybody in the guild, almost everybody we know, and I know it was for Strategic Development Group. I think it was our second-best year ever.

Andy: How is 2018 shaping up? I’m sure you’re looking ahead to what the first quarter looks like right now.

Mark: Yeah, Andy, I’m bullish. And if you’d asked me a year ago I would have told you I just didn’t know. I mean, if you look at a chart of all the recessions since 1929, surely we should have something after eight or nine years, and we haven’t gotten it yet. But things look good, our backlog is good, the backlog of my comrades are good. And there’s some other things going on that we, I’m sure, will talk about. I mean, there’s the discussion of tax cuts. Growth has been not so hot to overheat, you know. Everything is growing at a good pace, and people are lining up to consider decisions for next year.

Dennis: [Inaudible 00:05:49] because, I mean, coming out of a recession, this has been…you know, there was a lot of consternation that we weren’t growing at 4% or 5% GNP. Yeah, we’ve been growing at 1.5%, 2.5%, but quite frankly, what that has done to me, that will extend the recovery because it is not overheating. This has been gradual, and it continues to build. And the world economy is getting better.

Andy: So Patience and I are interested in kind of trends that you’re seeing as you look towards 2018. I’m interested, are there particular sectors in your business that you’re seeing maybe within the manufacturing sector or in the office sector, things that you’re seeing in particular heating up? And maybe, Dennis, we’ll start with you on this one.

Dennis: I mean, the trend is a continuation of what we’re seeing right now. You know, energy-intensive businesses have led the way in this recovery from a new investment standpoint, and that is because the cost of our energy in United States has come down dramatically, in particular with shale gas. So, you know, chemicals, upstream plastics, those kind of industries have been, you know…petrochemicals, and so on, I mean, they’ve been really strong. But now, you know, after…that leads the way. I mean, you’ve got all these consumer good…I mean, food processing is very hot. You know, health and beauty products, nutritionals, biologics, very, very strong. The motor vehicle sector remains strong as well.

Mark: I think Dennis’s comment about shale gas is the biggest thing that’s happened in business in 50 or 75 years. The reduction in energy prices, and all that reassuring [SP], we did an ethane cracker last year in Lake Charles, Louisiana. Lake Charles, Louisiana has had about $80 billion of investment in the last five or eight years. I mean, it’s monumental what’s going on. So we’ve got that going on. The automotive is interesting because, you know, automotive sales are flattening out, but what’s happening in automotive is interesting, there are new products coming in. Our clients are telling us that they’re bringing products to market this year and next year, that won’t exist in 10 years, that the electrification of cars and the communication, and the steering, and other things in cars is generating new markets that superimpose on the strong things that are already there.

Andy: Well, I think we can conclude, both Mark and Dennis you think the future looks bright, at least the immediate future.

Mark: We can even talk about aeronautics and building materials, but they’re the same, you know, just really hot.

Andy: I know that Patience’s taking a little different direction here on something that’s been a challenge for a lot of communities. Why don’t you jump in here?

Patience: Yeah. So we’d like to turn specifically to the topic of talent. So the U.S. unemployment rate at 4.1% is the lowest it’s been in the last decade. We’re curious to hear how this has been impacting your clients’ expansion plans. And let’s start with you, Mark.

Mark: Sure, Patience. Labor and labor availability is the number-one issue now. In years past, it’s been in there in the top three or top five, but it’s number one. And Dennis mentioned a second ago, capital investment and automation. Investments now are more and more capital-intensive, more investment per job created, and what that requires is a higher skill set of those people that are employed in those operations. So those businesses that are surviving, and growing, and proliferating, they need top-talented technical people. And if there’s a concern I have about a shortage or a bottleneck in the future, it would be the ability to attract the kind of people that work in a technical environment, both in our manufacturing setting and even a headquarter setting.

Patience: Dennis, your thoughts on that?

Dennis: I agree. You know, the number-one location criteria, even for companies that are very logistics-centered, or their or their raw-material-centered, you know, once you identify a geographic search region. So for companies that are totally mobile, they can go any place, or companies that are tied into a specific region, once you identify that geography, then clearly talent is the number-one driver, and it’s what I call labor cube [SP], competitive demand and supply, hence availability. So I guess that’s three factors, but it’s availability, you got to take in, you know, effect demand and supply, then quality, and then cost. And we’re finding it more difficult to identify labor markets that can meet that dynamic, especially over the longer term, so sustainability of that advantage is really critical. And what’s become imperative for companies these days…and we’re seeing more and more of it, designing an HR blueprint that will allow a company to succeed in a particular market based upon what its competitors, labor market competitors are doing in the market is absolutely essential.

Patience: So you started to touch on this a little bit already, Dennis, but we want to understand a little bit more broadly how you help your clients to identify communities with talent and evaluate that talent pool, and what are some of the red and yellow flags that you look for and evaluate as part of that process?

Dennis: You know, every client’s situation is different, but the most important thing is to sit down with your client, your business unit leaders, and human resource leaders, and to really identify the need, and that means that you’ve gotta be very specific on what the headcount requirement is, what the skills mix is, what the experience requirement is in terms of, you know, “Do we need functional experience, industry experience, combination [inaudible 00:11:38]?” Because that definition will drive you into certain labor markets. The more experienced talent we need by function and by industry, then obviously it’s gonna drive us generally into larger, more expensive markets. The more we could rely on qualified entry-level labor, and teach them the new technologies of our business, then we open up searches to smaller, more cost-effective markets. So getting the plan right is really critical.

Mark: I think in terms of sustaining, that’s the difference we’ve seen in the last few years in terms of how our clients want us to evaluate communities. So Dennis mentioned alignment with community absolutely, Dennis mentioned data research, desktop research absolutely. The next thing for us every time is to get on the ground and start talking to people, either publicly or non-publicly, talking to employers, talking to headhunters to find out if what the data is telling us has been ground truth. But there’s something else that’s come into the mix for us in the last few years, and that is our clients directing us, asking us to evaluate much more than the immediate labor pool, but they want us to evaluate school systems. We’re asked to look at school system budgets, and just what communities are preparing to do, because attracting workers, immediately and in the future, is so critical.

Andy: It was interesting, as you were talking, Mark, I was thinking back to a podcast that Patience and I did earlier in the year. It was on Charles Schwab and their decision to locate to Dallas and to set up a large corporate campus there. And what they told us is, “We don’t care where the talent is today. We’re trying to guess where the talent is gonna be in 20 years.” So if you guys were advising a community that maybe was experiencing a talent shortage now, what would you be telling them to do? Should they be focusing, as you were saying, on elementary school and, you know, sort of early childhood education and that sort of thing, or should they be focusing on trying to attract more talent to their community where…?

Mark: I think there are many things. In-migration is critical. I mean, if you look at Charleston, South Carolina now, they’ve got a new Volvo plant under construction, then they just announced an expansion. Boeing is in Charleston, South Carolina. Donlar [SP] located there. So what’s Charleston gonna do among other things? They’re gonna have to bring more people in, they’re gonna have to be an attractive force for that, and then they’re gonna have to grow their own, and that’s where we’re being asked to evaluate the sustainability of creating where students are going in, and evaluated at a young age to see that the reading, writing, math, thinking, logic skills are there. I’ve never seen this until probably the last three or five years. I don’t know where you are with this. So all of the things that Dennis mentioned in terms of the hardcore labor analysis are there, but now let’s think about the future.

And then the other force, particularly with the headquarters and maybe the Charles Schwab that you mentioned, Andy, is…is it a cool place to be? I mean, if it’s gonna be a headquarters or an office environment, is it gonna be a place that people want to go? And we did a search recently, and I couldn’t figure out why, but there was this very, very young person on the jet as we flew around to look at sites for our final decision.

Andy: Like someone in their 20s or…?

Mark: Right.

Andy: Okay.

Mark: And our purpose was to determine if it was gonna work, you know, from that perspective, “Is this a place I want to be? Is this…you know?” And it was fascinating to see that, and it was the right way to do it, no question. It’s perspective that they had to have.

Andy: I’m interested, you know, so there’s this “grow our own.” And just from my vantage point, I’ve seen a lot of workforce development programs in communities that don’t seem to be working terribly well. Either they’re not aligned with the corporate needs… You’re on the ground evaluating this kind of stuff. I mean, if you had to say the state of workforce development in America today, what’s your point of view on how strong, or how weak, or how problematic things are?

Mark: I mean, training programs are growing in sophistication and they’re growing and success and productivity, there’s no question, and they focus on, you know, working-age people, 18 and up. And that’s critical, but unfortunately, particularly with the capital intensity of these investments, and what is gonna be expected, it used to be that a person would be trained to do a job, and they would do that job. Now people are being trained to absorb the technology to do a particular job, but in two years or three years, when the new technology comes, and they have to be able to absorb that technology, and if they can’t, it’s a no-go. So that’s the difference. It isn’t just a skill. It’s the ability to absorb the knowledge to implement the technology.

Andy: Let me take you guys in another area here, very small, unimportant area of the impact of Donald Trump on [inaudible 00:17:03] development, and site selections, and company growth, and that sort of thing. So I’ll open this up by saying, are major companies heeding President Trump’s “America first: Keep jobs in the USA” rhetoric? Is that been a positive thing for site selection in the United States?

Mark: I’ll start. I think major US companies are heeding the policy to generate a profit for their shareholders and tip in an ethical way, and they’re gonna do that however is appropriate. And if that means using global suppliers, then that’s what they’ll do. If it means using U.S. suppliers, that’s what they’ll do. So, you know, my personal opinion is that equilibrium that’s created in that situation is gonna remain. I think NAFTA is a big variable. We can talk about that. You know, where are we gonna end up on NAFTA? We have some clients who are postponing investment considerations because of their concern about which way NAFTA will go. So I think the president’s definitely having an impact, and I gotta say, I mean, he’s a cheerleader, too, and that’s a positive thing. I mean, he’s fighting for it, and that’s nice to see, no question.

Andy: But what I’m also hearing you say, though, Mark, is companies are gonna be driven really by their own needs, and the need to generate a profit, and they will do that where they think they can best do that. Am I reading you correctly on that?

Mark: You’re reading me correctly, and not to say that the U.S. isn’t a fantastic place to do that, but that’s…you’re reading me correctly.

Andy: Okay. Dennis, you want to say…same question?

Dennis: The bottom line is that, you know, companies get…Mark is right. I mean, you have to run your business based upon, you know, marketplace conditions and financial performance. Having said that, you know, I think that, yes, when it’s a fairly close call, could we go offshore? Can we be in the U.S.? I think because of the dynamics that have been created by President Trump, and some of the blowback that a company could get for brand protection and reputation enhancement, just goodwill among consumers, they would opt to the United States. And I think you’ve seen examples of that, you know. There have definitely been some companies overseas. I think the level of reverse investment has slightly gone up, because companies that are sitting on the fence…maybe we’d put a new facility in the U.S. a year from now, some are…you know, they’re close. They accelerate that decision-making process, because they want to be in the U.S., they want to get the…again, the positive outfall, and quite frankly they’re concerned that punitive tariffs are gonna be established and they want to be here before that happens.

Andy: Sticking with President Trump, his tax reform bill, we’re recording this on December 8th, and it looks like it’s headed towards some sort of a finish line. If it gets through and corporate tax rates go down dramatically, good thing for investment and site selection decisions for companies. What’s your perspective? Mark, start with you on this one.

Mark: My bet is for corporations, it’s a good thing. I mean, let’s not get into a debate of, you know, what part of the population got what? Corporations are gonna go from 35% to 22% or 20%, whatever it is. That seems like there’s gonna be some extra funding there that may go to many things, but I think capital investment would likely be one of those pieces. And I guess one other point is, capital investment doesn’t always generate jobs. Sometimes it reduces jobs. So that’s an interesting thing to think about, because if suddenly you’re able to, for whatever reason, be able to apply a capital investment to a situation, you might apply it in a way that automates it more deeply, and so investment isn’t always analogous to creating jobs.

Dennis: Yeah, I would say that, look, a lot of multinational corporations really do not pay that effective 35% tax rate. So in its final passage, if indeed this rate is reduced to 20%, and it applies to small businesses, which I think it will, it could be a boon to small businesses because, you know, we don’t have the kind of write-off capabilities as small businesses, as a major corporation. So effectively reducing that tax rate for partnerships and LLCs, if that’s the way it goes, that will have a major impact, because majority of jobs in this country are created by small businesses. So that…hopefully, if that is true, then that’s gonna have a major plus in capital investment, in my opinion.

Patience: So I’m gonna take you in a little bit of a different direction. A discussion about 2017 and 2018 wouldn’t be complete if we didn’t touch on HQ2. So we want to get your perspective on Amazon’s site selection process. Do you see other companies following that model in the future?

Mark: Well, I’ll start.

Andy: Go.

Mark: I’ve never seen anything quite like it. Often you’ll see a company, in the beginning of a process, announcing they’re gonna undertake it, but not to a very public solicitation. So I haven’t seen that, Dennis, and on that scale, I don’t know if you have. So…
Dennis: No.

Mark: …that’s very different. It’s interesting given the…Andy and I were talking about this earlier, the size of this project, if there really are 50,000 people involved, and, as you know, you may have to…you’re gonna have to interview 30 people to hire for each job so that you’re at a million and a half people, if that’s the case. So…

Dennis: It’s a million and a half interviews, right?

Mark: Well, it’s a million and a half interviews, and it’s a million and a half qualified people. So to me, my personal opinion is only very, very large cities, labor-draw areas are gonna be able to satisfy that. So my understanding is…and the question will come up, is it being handled internally? And some companies, Patience, they do that. They have the staff and the capability to do it, and I believe that’s the case in this particular project.

Patience: What’s your take on it, Dennis?

Dennis: My take is, number one, this is not a trend, you know. It really is, in my opinion, for all parties involved, this is a grossly inefficient way to go about a site selection process. Very few companies will have the resource capability of doing this without doing any vetting in my opinion. Maybe there was some venting done, but going out to 250 communities for headquarters, when there’s probably less than a dozen areas that could really sustain the operation as envisioned, is both unfair, it’s unnecessary.

Now, you know, what are some of the positives? Some of the positives are there will be some really creative ideas on how this location could work for Amazon. There’s no question about it. That’s one. Second, many regions of the country will have an alignment of the stakeholders. They will be more in harmony, if they ever have been before. That’s a tangential advantage, and there could be some consolation prizes for communities down the road, you know, be they…you know, who knows? Satellite offices.

Patience: I was just going to comment that it strikes me that between HQ2, Foxconn, Carrier, that this might have been, you know, one of the biggest years for the site selection profession in the media, in general. Does that ring true for you?

Mark: Well, the Toyotas out there, too. And that’s become public, handled a little differently once it was announced, you know, they’re having somebody help them with that. Yeah, I don’t remember…I’ve only been chair of the guild for a year, but the phone rings once a week, and then, you know, people want to talk about how this is going, and it’s…never seen it before.

Dennis: Yeah. The only other analogies are, you know, some of the major transplant automobile plants started out with Mercedes. You know, clearly, I mean, they were, in a sense, shocked, but, you know, there was a lot of specificity there. I mean, you had to be into an area where that site had huge infrastructure, either now or had to get it done. So this wasn’t just, you know, throwing up in here [SP], “Where are we gonna go?” You know, there’s 300 places. I mean, you had to start vetting sites, and then, you know, you open it up to competition. And, of course, in that case, you know, labor market is very important, but at that point in time, going into Tuscaloosa, Alabama for Mercedes, quite frankly, they’re gonna be attracting workers from all around the country. I mean, you know, particularly in a downturn in the economy, you’ll have workers showing up on your door from almost every state in the country. So it was a little bit different. But that’s about the only analogous situation I can think of where…the auto transplants.

Patience: So I’m gonna take you, again, in a different direction to cover a broad topic in a short period of time. Let’s talk about foreign direct investment, and what is likely to happen in that area in 2018. Dennis, let’s start with you.

Dennis: Foreign direct investment’s gonna continue to be buoyant. My estimation is about 15% to 18% of the market right now. There are many reasons well beyond Trump. It’s the fundamentals of the North American economy, especially United States economy, and that’s going to continue to attract companies from around the globe. We will see a…and it’s already begun, an acceleration of capital investment from Chinese companies establishing facilities in this country. It could be through joint ventures and partnerships, but a lot of it is gonna be bricks and mortar. And believe it or not, Indian companies are beginning to make a toehold in the United States, and that’s gonna grow as well. So China and India will become major players in foreign direct investment. China’s ahead of the curve right now, India’s catching up. And India…and it’s interesting, it’s both…I mean, if you just read the announcement of Infosys, you know, putting a major facility in Rhode Island. So it’s not just…for India, it’s not just on the manufacturing side, it’s on the technology side as well.

Patience: Mark, would you agree that China and India-based companies are most investing in the U.S. right now, and likely to?

Mark: They are. I mean, some of them are our clients, and clearly their activity is increasing. Look, people used to come to the U.S…or in the past, primary reason of coming to the U.S. is it’s a safe and good place to do business, and it’s the largest consumer population in the world. And that’s still true, and that’s all still very positive. One of the things I’ll point out that’s evolving is…and if you look at the case of where I live in South Carolina, if you look at BMW and you look at Volvo, both of them…BMW is exporting about 70% of what they make a year. Volvo projects to export about the same.

Andy: Just on that, could international companies looking at investing in the U.S. for the first time, what’s the biggest mistake you’ve seen, or the biggest mistake that an international company, looking at the U.S. for the first time, would tend to make? Is there any advice you would have for someone looking at this for the first time?

Mark: Selfishly, I would say that they need a trusted advisor or advisors to obtain perspective that they don’t already have. I’ve seen situations where that perspective isn’t gained in the beginning, and decisions are made which really don’t meet their fundamental goal. So when you don’t know an area, it’s best, whether it’s in the U.S. or in China, I think you need somebody you can trust to either get you the perspective you need or find whoever else has that respective, but that has to be there.

Dennis: Biggest concern I would have is, companies doing this for the first time may not have the level of sophistication because they haven’t done this before, and so it would be being led to locations by incentive packages rather than looking at the critical operational factors that will make this successful when an incentive should be an enhancement, not the driver. And that’s a major pitfall for foreign companies.

Andy: So the incentive packages becomes the shiny object that overtakes everything? I asked you earlier, what is the biggest mistake that international companies make in looking at an investment opportunity? I want to ask you, you both work with hundreds of economic development groups. What is the biggest mistake an economic developer or an economic development group makes in interacting with a site selection consultants?

Mark: The site selection consultant should be very valuable to the economic developer because the good site selection consultant has become one in alignment with their client, and they are the conduit to what drives the site location decision. So when that site consultant that has that awareness interacts with the economic developer, the economic developer has to be very astute at drawing out the essence of what’s gonna make that project a success in their community. That doesn’t mean piling on all the information they have and the latest programs, because that may not pertain, at all, to the essence of what’s driving the decision. So the biggest mistake is not using that site selection consultant and not drawing on a sort of a needs-based selling perspective of what’s driving a project.

Andy: Okay, Dennis, I’m sure you have a perspective on this, too.

Dennis: Well, my perspective is that, you know, I’m amazed at…I think the economic development profession is…I mean, it’s just improved leaps and bounds in terms of the quality of people, the technology, the information, the services provided, the involvement now and workforce, I think it’s terrific. If there’s one criticism I would have that is more common than it should be, it’s a lack of understanding of dynamics within target industries. And, you know, I can’t tell you the number of times when we go into a community…and it should be off the top of your head, if you’ve targeted a certain manufacturing sector, certain office sector, you need to know who the players are, how their expansion’s going, what’s their annual turnover rate? What are their wage rates? What are their HR practices? I mean, it is just amazing how little knowledge is related without a lot of additional research in industries that are already comprised ecosystems in these communities. It’s very surprising to me.

Andy: So, “Know your product,” is the takeaway there?

Dennis: It’s, “Know your product,” but especially in target industries and beyond just the physical dimensions of the industry, you know, where they’re located, and so forth. What has been their operational performance? And then, what has made them succeed in this community? And if I ask you what’s the turnover rate…you know, employee turnover rate in a company? Now, you don’t have to necessarily give it for the company, but in this target industry, why have they been running about 20% [inaudible 00:32:37]? Most of the time, I can’t get an answer.

Andy: Okay.

Mark: Can I…?

Andy: Yeah, go ahead, Mark.

Mark: I think the best economic developers are those that…as background, every community has assets and liabilities, and the most astute economic developers understand what their assets are, and they understand what their liabilities are. Where they break from the pack is they figure out which companies or which sectors, like Dennis is saying, treasurer their assets and don’t care so much about their liabilities, and they target those people. There’s no sense in fishing in a pond with no fish in it. They’ve got to target the people that love ’em for who they are and what they can provide. And understanding that, going into the process, seems simple, but it’s really not sometimes, and very important to their success.

Andy: Okay. I think I have a final question, you may have another one, as well, Patience, but we asked you to think about one major prediction for 2018. So I want you to imagine you’re sitting back around this table with Patience and I a year from today. What is something big that’ll happen in the site selection field in 2018? Anything come to mind, guys? Mark, you want to start with this? Let me start with you on this one.

Mark: Andy, I think the economy is gonna continue growing, and I think, however this happened, the discussion of Foxconn, and Amazon, and some others have really raised public awareness about this profession. And Dennis mentioned it earlier, we believe that only 40% or 50% of the companies that are out there looking are using a professional. So I’m hopeful that more of them will use qualified professionals and make better decisions. So I think investment is gonna continue, which I told you I didn’t think would happen a year ago.

Andy: Dennis, you have a prediction you want to share with us?

Dennis: You know, it really relates into the whole area of talent. Artificial intelligence is still going to really interject a new set of dynamics in corporate America. I mean, we’re really…I mean, the upskilling process is in place, and this is for all industries, you know, and that’s gonna create a significant demand for these skills in these markets. So you’re gonna really have to see much, much more robust workforce development programs. I think every economic development agency worth its salt needs to have a professional dedicated to workforce. That’s really key, and to be sure that all the stakeholders are aligned, and they have a metric-driven workforce development plan. And then I think what you’ll see, which is somewhat different these days, that in areas, companies that are not directly competing with each other for business will pull resources, and I think you’ll see almost…what I call mass customization of training where you might get 5, 6, 10 companies with similar skill requirements reaching out to the education and training stakeholder community to develop programs where you can get scale, and you can get new equipment, and so forth, and you can have major impact for training, not just on a siloed basis, one-on-one, but on a number…you know, with a number of companies that will be demand and it’ll make these programs world-class.

Andy: Mark, Dennis, thank you very, very much for joining us today, and giving us a lot of great stuff to chew on here. Final plug for the Site Selectors Guild, it’s a great organization. If you’re an economic developer listening to this, please get involved with their programs. If you are a corporate executive listening to this, we hope you’ll consider employing some of their firms, and some of the individuals who are highlighted…44 individuals.

Mark: Forty-four now, that’s correct. Appreciate that.

Andy: Okay, good. But really appreciate both of your time and being so generous in sharing these things with both the corporate executive community, as well as the economic development community.

So that is a wrap on this special episode of “The Project: Inside Corporate Location Decisions.”

Patience: A very special thank you to Mark Williams and Dennis Donovan for taking the time to do this podcast. The full transcript of our 57-minute conversation with Mark and Dennis is available on our website at aboutdci.com.

Andy: If you’re interested in learning more about the Site Selectors Guild, the organization’s website is www.siteselectorsguild.com.

Patience: And if you’d like to learn more about DCI’s database of more than 300 site selection consultants across North America, we encourage you to visit www.locationadvisors.com.

Andy: “The Project” is sponsored by DCI. We’re the leader in marketing places, and have served over 450 different cities, states, regions, and countries. You can learn more about us at aboutdci.com.
Patience: It’s a new year, and we are hard at work at new episodes of “The Project.” Keep tuning in every other Monday, we’ll have a new episode of “The Project” for you. We hope you will keep listening. There are many more projects to come.

Andy Levine (DCI). So welcome to episode 34 of “The Project: Inside Corporate Location Decisions.” We’re joined by two outstanding site selection consultants today; let me introduce you to each of them. We’re gonna start with Mark Williams, he’s president at Strategic Development Group, Inc. out of Columbia, South Carolina, which he started in 1999. Welcome, Mark.

Mark Williams (Strategic Development Group, Inc.): Thank you, Andy. Good to be here.

Andy: Great to have you on the program. Dennis Donovan is a principal within WDG or Wadley Donovan Gutshaw Consulting out of Bridgewater, New Jersey, which he started in 1992. Welcome, Dennis.

Dennis Donovan (Wadley Donovan Gutshaw Consulting): Pleasure to be here. Thank you, Andy.
Andy: And I think you’ll know my partner in crime and cohort, Patience Fairbrother. I think they’ll be able to distinguish your voice between the three.

Patience: I think they can probably tell which one I am.

Andy: Sounds good. Sounds good. So we’re gonna talk about 2018. We’re gonna talk about the year ahead and get some thoughts from each of these consultants about what the year looks like ahead. But first we want to mention that both of them, both of them are members of the Site Selectors Guild. This is the only association of the world’s foremost professional site selection consultants. Mark is chair of the Guild and Dennis is board advisor of the guild. Mark, do you want to just say a quick word about the Guild itself and what it represents, just to set this for our listeners?

Mark: Well, the Guild is a bit of a miracle of site selection consultants, mostly from the U.S. But from around the world, about seven years ago, got together and decided they want to form what we believe is the only association in the world of site location consultants.

And so, people like Dennis and I and others, we have vast experience that we share with economic developers, corporate experts, people like yourselves, and the Guild is very busy, and it’s a growing organization that we’re very proud of.

Andy: Okay. You hold two major confeerences a year?

Mark: We hold two major conferences a year. Right now, we’re looking at some other products we could talk about. The first is an annual meeting, typically in the February/March time frame. And then we do something called a Fall Forum. The Fall Forum is about half the size of the annual meeting. So there are now 44 members total, we’ve just added one. It’s not public yet, but we’ve just added one.

So all 44 members will be at the annual meeting, and we keep a ratio that’s pretty tight; eight attendees to one Guild member, and then the Fall Forum is about half of that.

Andy: Sounds good, sounds good. So you can’t talk about 2018 without reflecting and looking back at 2017. So I’ll put this one to you first, Dennis, here. So how would you characterize 2017 in terms of business for both your firm as well as for most of the Guild?

Dennis: I’d say 2017 was a robust year in terms of corporate location activity. These are new facilities and expansions. And this really started, you know, after the Great Recession; it took several years for companies to really get up to speed in terms of being in a position financially and market…competitive-wise, marketplace-wise, to commit to new investment for additional capacity.

And so, what we’ve seen is probably in about 2014, 2015, that uptick really started to become established. And now, it’s increasing every year. So ’17 was a very good year. And I have to tell you that most of the expansion has been across geographies and across industries. So it’s deep and it’s strong.

Andy: Mark, you concur with Dennis’ thoughts?

Mark: I definitely concur. The recession hangover has been dissipating, and 2017 was a banner year, I think, for everybody in the Guild, most everybody we know. And I know it was for Strategic Development Group; I think it was our second-best year ever. And yes, as Dennis mentioned, it’s across geographies, there are a couple of hot sectors that we see but I think are out there; chemical is one and automotive, and you’ve heard of the Foxconn and now the Amazon, I think we’ll talk about some of these. So there’s an awful lot going on in a lot of sectors. Some heavy manufacturing, some more technology-oriented.

Andy: So we’re recording this in December of 2018…2017, excuse me…yeah, we’re recording this now. How is 2018 shaping up? I’m sure you’re looking ahead to what the first quarter looks like right now. And are you bullish on what 2018 is gonna look like for you? Mark?

Mark: Yeah, Andy, I’m bullish. And if you’d asked me a year ago, I would have told you I just didn’t know. I mean, this…if you look at a chart of all the recessions since 1929, surely, we should have something after eight or nine years, and we haven’t gotten it yet. But things look good, our backlog is good, the backlog of my comrades are good, and there’s some other things going on that we…I’m sure we’ll talk about. I mean, there’s a discussion of tax cuts. Growth has been not so hot to overheat, you know? Everything is growing at a good pace and people are lining up to consider decisions for next year.

So I think, Dennis, we might get another year out of this; I hope so. I feel it.

Dennis: I feel it may be longer than a year, you know?

Mark: I so.

Dennis: Because the growth is so…

Andy: A year and a half, maybe, or something.

Dennis: …yeah, I think maybe three or four years, I’ll have to be honest with you. Because, I mean, coming out of the recession, this has been…you know, there was a lot of consternation that we weren’t going for; 5% GNP. You know, we had been growing at 1.5%, 2.5%. But quite frankly, what that has done to me, that will extend the recovery because it is not overheated.

Mark: Right.

Dennis: This has been gradual, and it continues to build. And the world economy is getting better. I mean, even…you know, people say China is now…China is growing 6% a year. I mean, this is not bad. So I think the fundamentals are in place for continuous sustained…not recovery, but continuous sustained level of new investment in facilities in capital equipment. And that is gonna reflect strong marketplace conditions, both domestically and globally.

Andy: So Patience and I are interested in kind of trends that you’re seeing as you look towards 2018. I’m interested, are there particular sectors in your business that you’re seeing maybe within the manufacturing sector or in the office sector? Things that you’re seeing, in particular, are heating up, and maybe, Dennis, we’ll start with you on this one.

Dennis: You know, I…I have to repeat myself. I mean, the trend is a continuation of what we’re seeing right now. You know, energy-intensive businesses have led the way in this recovery from a new investment standpoint. And that is because the cost of our energy in the United States has come down dramatically, in particular with shale gas. So you know, chemicals, upstream plastics, those kind of industies have been…you know, petrochemicals and so forth, they’ve been really strong.

But now, you know, after…that leads the way. I mean, you’ve got all these consumer good manufacturers…I mean, food processing is very high, you know? Health and beauty products, nutritionals, biologics; very, very strong. The motor vehicle sector remains strong as well. So it’s pretty diverse. And then we’ve got our traditional manufacturing. You know, plastics beyond just the resins and so forth, but plastics and fabricated plastics and so forth; metals, building materials, robotics. And I would have to say that if you include energy, all right, and take plastics and metals…you know, our basic bread and butter manufacturing…ten years ago, in my opinion, 30% of the new investment that went to the U.S. in the last couple of years would have been offshore.

And today…and the energy is one reason for these heavier industries. But the reason why a lot of manufacturing is now being located in the United States, when it could have gone offhshore before, is the substantial investment in technology and process efficiencies, artificial intelligence, robotics. What’s happened is that American manufacturers…you know, if anybody’s gonna target an industry called “advanced manufacturing,” get rid of it. Because if you’re not advanced, you’re not manufacturing. Everybody is in advanced manufacturing these days.

So the cost of labor in terms of percentage of cost of goods sold has come down dramatically. And that has allowed companies to compete globally from a United States footprint.

Andy: So right now, you’re seeing that as a U.S. advantage is what I’m hearing you saying?

Dennis: I definitely see it as a U.S. advantage, yes.

Mark: I think Dennis’ comment about shale gas is the biggest thing that’s happened in business in 50 or 75 years. The reduction in energy prices and all that reshoring…we did an ethane cracker last year in Lake Charles, Louisiana. Lake Charles, Louisiana has had about $80 billion of investment in the last five or eight years. I mean, it’s monumental what’s going on. So we’ve got that going on.

The automotive is interesting because, you know, automotive sales are flattening out. But what’s happening in automotive…it’s interesting, the new products coming in. Our clients are telling us that they’re bringing products to market this year and next year that won’t exist in ten years. That the electrification of cars and the communication in the steering and other things in cars is generating new markets that superimpose on the strong things that are already there.

Dennis: Absolutely.

Mark: ECommerce, and related eCommerce and distribution centers and fulfillment centers, is something that we see a lot of business in now. It’s rampant the way logistics modeling is changing and how people are approaching their customers. So there are just so many different facets of heavy industry, lighter industry, technology, distribution. It’s a pretty fascinating time to be in the business.

Dennis: Don’t forget back offices. I mean…

Andy: I was just gonna go there.

Dennis: …there’s no question about it. And again, on…you know, a lot of customer service centers now are becoming multi-channel. They’re requiring, you know, higher skill sets, and quality is a real issue. So again, we’re seeing…even though companies…yes, there’s global deployment in customer service, a lot of activity in the United States because of quality and because the bar has been raised in terms of requirements of customer service representatives.

Back office support in financial services, in insurances, medical records technology and so forth expanding dramatically. Many companies, they have middle office functions; there can be settlements and frauds and so forth…fraud and compliance, treasury. Those kind of functions that tend to be housed in very expensive Tier 1 metro areas. We’re seeing a migration of that, those kind of activities into Tier 2 and Tier 3 metro [inaudible 00:11:14] labor force.

And technology. Again, companies have a global footprint. They follow the sun in technology. But there still is a substantial investment in infrastructure, network infrastructure, and software development here in the United States. Even for companies that are also putting those kind of facilities offshore.

Andy: Well, I think we can conclude, both Mark and Dennis, you think the future looks bright, at least the immediate future.

Mark: We didn’t even talk about aeronautics and building materials, but they’re the same, you know? Just really hot.

Andy: I feel that Patience is taking a little different direction here on something that’s been a challenge for a lot of communities. Why don’t you jump in here?

Patience: Yeah, so, we’d like to turn specifically to the topic of talent. So the U.S. employment rate at 4.1% is the lowest its been in the last decade. We’re curious to hear how this has been impacting your clients’ expansion plans. And let’s start with you, Mark.

Mark: Sure, Patience. Labor and labor availability is the number one issue. In years past, it’s been in there in the top three or top five, but it’s number one. And Dennis mentioned a second ago capital investment and automation. Investments now are more and more capital-intensive, more investment per job created. And what that requires is a higher skill set of those people that are employed in those operations.

So those businesses that are surviving and growing and proliferating, they need top talented technical people. And if there’s a concern I have about a shortage or a bottleneck in the future, it would be the ability to attract the kind of people that work in a technical environment, both in a manufacturing setting and even a headquarters setting.

Patience: Dennis, your response on that?

Dennis: I agree. That…you know, the number one location criteria…even for companies that are very logistics-centered, or they’re raw materials-centered…you know, once you identify a geographic [inaudible 00:13:13]. So for companies that are totally mobile, they can go anyplace. For companies that are tied into a specific region…once you identify that geography, then clearly, talent is the number one driver. And it’s what I call “Labor-Cubed;” competitive demand and supply, hence availability…so I guess that’s three factors, but it’s availability. You’ve got to take into effect demand and supply. Then quality and then cost.

And we’re finding it more difficult to identify labor markets that can meet that dynamic, especially over the longer term. So sustainability of that advantage is really critical. And what’s become imperative for companies these days, and we’re seeing more and more of it, designing an HR blueprint that will allow a company to succeed in a particular market based upon what its competitors, labor market competitors are doing in market, is absolutely essential.

And if the company doesn’t have the tolerance, it can’t change and have the flexibility to adjust its HR policies, compensation structure and so forth to succeed in that market, then that will become a deciding factor of where to go, that market or another market. So this is really gonna be key.

Also, I’ve read…you know, it seems to be common…a common perception or opinion among economists that what the labor shortage is projected to be…because it’s gonna get worse rather than better, that we may be constrained on GDP growth to 2.5% or under. And that’s a serious problem. And it will be complicated; it’ll be compounded if we have restricted immigration policy, which seems to be happening, so…

Patience: So you started to touch on this a little bit already, Dennis, but we want to understand a little bit more broadly how you help your clients to identify communities with talent and evaluate that talent pool. And what are some of the red and yellow flags that you look for and evaluate as part of that process?

Dennis: Well, you know, every client situation is different. But the most important thing is to sit down with your client, your business unit leaders and human resource leaders, and to really identify the need. And that means that you’ve got to be very specific on what the headcount requirement is, what the skills mix is, what the experience requirement is in terms of the…you know, “Do we need functional experience, industry experience?” A combination thereof. Because that definition will drive you into certain labor markets. The more experienced talent we need by function and by industry, then obviously, it’s gonna drive us generally into larger, more expensive markets. The more we can rely on qualified entry-level labor and teach them the new technologies of our business, then we open up searches to smaller, most cost-effective markets. So getting the plan right is really critical.

Then you’ve got to look at what you bring to the table from an HR standpoint, and how flexible are you to change in those…be it time off policy and whatever it may be. So upfront planning is key. And then once you do that, then it’s gonna become very metric-driven. If we need 25 experienced CNC machine operators, then we better be in a market that has a minimum of 250, all right?

So all the way down the line, we take our requirements in terms of what we need, we start identifying communities that meet the metric. It could be underemployed, it could be whatever the occupation or industry is. Some companies want to be in an area that has a strong industry ecosystem. Some don’t because there’s too much competition. So you have to look at that. You have to look at the saturation of that market in terms of skill sets.

So it’s a very systematic process to be able to identify, from desktop research and additional supplemental research, areas that have a chance of meeting the requirements of talent including the pipeline of talent coming into market and so forth. Then when you get down to a manageable number of locations and you’ve vetted them, and you’ve looked at who the competitors are in that market and are they likely to succeed, then you have to get out and do empirical research, and find out what have been the experiences…recent past, now, and in the future in terms of the ability to hire the kinds of skills that the company needs, and what does it take to hire them? Not just compensation, but you know, what makes the company a preferred employer in that market? So it’s a holistic view of human resources that you must be able to ascertain…and I’ll tell you, and then even the work site because if we’re in a larger area, that work site may or may not be…targeted work sites that meet the requirements on real estate, they may or may not be in the right position geographically to be able to be close to where your worker pool is. So it could be competing employers that siphon off that labor.

So it gets…I can’t say complex, but it gets intricate. And you’ve got to kind of, like, just take it in buckets and look at the demand and the supply and then tie it all together, and then make a determination. “Are the advantages that drove this market gonna be sustained long-term?”

Mark: I think in terms of sustaining, that’s the difference we’ve seen in the last few years in terms of how our clients want us to evaluate communities. So Dennis mentioned alignment with community, absolutely. Dennis mentioned dat research, desktop research, absolutely. The next thing for us every time is to get on the ground and start talking to people, either publicly or not publicly. Talking to employers, talking to headhunters. To find out if what the data is telling us has been ground truth.

But there’s something else that’s come into the mix for us in the last few years, and that is our clients directing us, asking us to evaluate much more than the immediate labor pool, but they want us to evaluate school systems. They want us to evaluate the potential of a community to grow, to attract new employees that would be in for the long haul. These facilities aren’t built for five years or ten years, they’re built for 50 years.

And so, now we’re seeing that, which is fascinating. We’re asked to look at school system budgets and just what communities are preparing to do, because attracting workers immediately and in the future is so critical.

Andy: It was interesting, as you were talking, Mark, I was thinking back to a podcast that Patience and I did earlier in the year. It was on Charles Schwab and their decision to locate to Dallas and to set up a large corporate campus there…I think it was about 2,000 jobs, something like that.

And what they told us is “We don’t care where the talent is today. We’re trying to guess where the talent’s gonna be in 20 years.”

Patience: Ten, twenty years, yeah.

Andy: And it’s sort of along the lines of what you’re talking about. So if you guys were advising a community that maybe was experiencing a talent shortage now, what would you be telling them to do? Should they be focusing, as you were saying, on elementary school and, you know, sort of early childhood education and that sort of thing? Or should they be focusing on trying to attract more talent to their community?

Mark: I think there are many things. In-migration is critical. I mean, if you look at Charleston, South Carolina now, they’ve got a new Volvo plant under construction, and then they just announced an expansion. Boeing is in Charleston, South Carolina. Daimler located there.

What’s Charleston gonna do, among other things? They’re gonna have to bring more people in. They’re gonna have to be an attractive force for that. And then they’re gonna have to grow their own, and that’s where we’re being asked to evaluate the sustainability of creating where students are going in and evaluated at a young age to see that the reading, writing, math, thinking, logic skills are there. I’ve never seen this until probably the last three or five years. I don’t know where you are with this. So all of the things that Dennis mentioned in terms of the hardcore labor analysis are there. But now, let’s think about the future.

And then the other force, particularly with the headquarters and maybe the Charles Schwab that you mentioned, Andy, is is it a cool place to be? I mean, if it’s gonna be a headquarters or an office environment, is it gonna be a place that people want to go? And we did a search recently, and I couldn’t figure out why, but there was this very, very young person on the jet as we flew around to look around at sites for a final decision.

Andy: Like someone in their 20s or something?

Mark: Right.

Andy: Okay.

Mark: And their purpose was to determine if it was gonna work. If, you know, from that perspective. “Is this a place I want to be?” Is this…you know, it was fascinating to see that, and it was the right way to do it, no question. It’s the perspective that they had to have.

Andy: I’m interested…you know, so there’s this “Grow our own” and just from my vantage point, I’ve seen a lot of workforce development programs in communities that don’t seem to be working terribly well. Either they’re not aligned with the corporate needs. You’re on the ground evaluating this kind of stuff. I mean, if you had to say the state of workforce development in America today, what’s your point of view on how strong or how weak or how problematic things are?

Mark: I mean, training programs are growing in sophistication and they’re growing in success and productivity, there’s no question. And they focus on, you know, working age people, 18 and up, and that’s critical. But unfortunately, particularly with the capital intensity of these investments, and what is gonna be expected, it used to be that a person would be trained to do a job, and they would do that job. Now, people are being trained to absorb the technology to do a particular job. But in two years or three years when the new technology comes…and they have to be able to absorb that technology. And if they can’t, it’s a no-go.

So that’s the difference. It isn’t just a skill. It’s the ability to absorb the knowledge to implement the technology.

Andy: Let me take you guys in another area here; a very small, unimportant area of the impact of Donald Trump on economic development and site selections and company growth and that sort of thing. So I’ll open this up by saying are major companies heeding President Trump’s “America First, keep jobs in the USA” rhetoric? Has that been a positive thing for site selection in the United States?

Mark: I’ll start. I think major U.S. companies are heeding a policy to generate a profit for their shareholders in an ethical way. And they’re gonna do that however is appropriate. And if that means using global suppliers, then that’s what they’ll do. If it means using U.S. suppliers, that’s what they’ll do.

So you know, my personal opinion is that equilibrium that’s created in that situation is gonna remain. I think NAFTA is a big variable; we can talk about that. You know, where are we gonna end up on NAFTA? We have some clients who are postponing investment considerations because of their concern about which way NAFTA will go.

So I think the President’s definitely having an impact. And I’ve got to say, I mean, he’s a cheerleader, too, and that’s a positive thing. I mean, he’s fighting for it and that’s nice to see, no question.

Andy: But what I’m hearing you say though, Mark, is companies are gonna be driven, really, by their own needs and the need to generate a profit, and they will do that where they think they can best do that. Am I reading you correctly on that?

Mark: You’re reading me correctly. And not to say that the U.S. isn’t a fantastic place to do that, but that’s…you’re reading me correctly.

Andy: Okay. Dennis, you want to…same question?

Dennis: The bottom line is that, you know, companies…Mark is right. I mean, you have to run your business based upon, you know, marketplace conditions. I mean, and financial performance. Having said that, you know, I think that, yes, when it’s a fairly close call, could we go offshore? Could we be in the U.S.?

I think because of the dynamics that have been created by President Trump and some of the blowback that a company could get for brand protection and reputation enhancement, and just goodwill among consumers, they would opt to the United States. And I think you’ve seen examples of that, you know?

There have definitely been some companies overseas…I think the level of reverse investment has slightly gone up because companies that are sitting on the fence…”Maybe we’d put a new facility in the U.S. a year from now.” Well, some are…you know, when they’re close, they accelerate that decision-making process because they want to be in the U.S., they want to get the…again, the positive out-fall. And quite frankly, they’re concerned that punitive tariffs are gonna be established, and they want to be here before that happens.

So again, that’s had, I think, a small…

Andy: I want to take…

Dennis: …a small, positive impact.

Andy: …take you in the direction of one specific surprising deal was the Foxconn deal, which was announced at the White House, and went to, you know, Paul Ryan’s district. I was fairly surprised when that happened. I’m curious…what was your point of view as you observed that happening?

Mark: The question that I had, Andy, was I just wondered…in the profession that Dennis and I are in, on what analysis was that decision made? Had they gone through a thorough analysis of the site as it met their needs for a variety…or was it a political decision? And some of these decisions have a political tone to them, there’s no question.

Andy: Right.

Mark: But I don’t know for sure; maybe you could help me. But I don’t even think that they even had identified a site when it was announced. Maybe I’m wrong, but…

Dennis: …I mean, 10,000 workers or whatever. But again, you know, Foxconn is not gonna be putting a major facility in the United States unless it makes good business sense to do so. They can put a small operation, but not a mega operation.

So, you know, whether or not…I mean, who knows? I mean, it seems like a reasonable location. Whether it not it turns out to be the best long-range location, time will tell. Because we’re not aware of any…you know, what the process was of leaning the company to Wisconsin.

Mark: One comment I will make is I’ve seen…I’m guessing we’ve seen companies that haven’t used our services sometimes make decisions based on factors that aren’t at the core of their success. So maybe they get a big incentive package, or maybe they knew somebody, or maybe they like to ski there. But often, those aren’t sustainable, profitable decisions.

So there’s gonna have to be a business fundamental behind this decision as there all with all decisions. Because the rest of it goes away eventually.

Andy: Okay. You’re reminding me…we did a podcast similarly with a company called The Little Potato Company that did the entire thing themselves, and they were like, “Man, we could have used some help on this.” So it was…

Mark: It was good to hear.

Andy: …interesting hindsight on that. Sticking with President Trump, this tax reform bill…you know, we’re recording this on December 8th and it looks like it’s headed towards some sort of a finish line. If it gets through and corporate tax rates go down dramatically, good thing for investment and site selection decisions for companies? What’s your perspective? Mark, we’ll start with you on this one.

Mark: My bet is for corporations, it’s a good thing. I mean, let’s not get into a debate of who…you know, what part of the population got what.

Andy: Right.

Mark: But if corporations are gonna go from 35% to 22% or 20%, whatever it is, that seems like there’s gonna be some extra funding there that may go to many things. But I think capital investment would likely be one of those pieces. And I guess one other point is capital investment doesn’t always generate jobs; sometimes, it reduces jobs. So that’s an interesting thing to think about. Because if suddenly you’re able to, for whatever reason, be able to apply a capital investment to a situation, you might apply it in a way that automates it more deeply.

And so, investment isn’t always analogous to creating jobs.

Andy: Gotcha, gotcha. Have you seen that with some of your clients where the headcount actually goes down based upon a large capital investment?

Mark: Often, it can go up very little or not at all.

Andy: Okay.

Mark: Particularly in a business…we were talking about the chemical business. You can invest $1 billion and create 20 jobs. I mean, it’s very capital-intensive.

Andy: Good.

Dennis: Yeah, I would say that…look, a lot of multinational corporations really do not pay that effective 35% tax rate. So in its final passage, if indeed this rate is reduced to 20%, and it applies to small businesses, which I think it will, it could be a boon to small businesses because, you know, we don’t have the kind of write-off capabilities as a small business…as a major corporation. So effectively reducing that tax rate for partnerships and LLCs, if that’s the way it goes, that will have a major impact. Because the majority of the jobs in this country are created by small businesses. That hopefully will…if that is true, then that’s gonna have a major plus in capital investment, in my opinion.

Patience: So I’m gonna take you in a little bit of a different direction. A discussion about 2017 and 2018 wouldn’t be complete if we didn’t touch on HQ2. So we want to get your perspective on Amazon’s site selection process. Do you see other companies following that model in the future?

Mark: Well, I’ll start. I’ve never seen anything quite like it. Often, you’ll see a company in the beginning of a process announcing they’re gonna undertake it, but not to…of a very public solicitation. So I haven’t seen that, Dennis, on that scale. I don’t know if you have.

Dennis: No.

Mark: That’s very different. It’s interesting given the…Andy and I were talking about this earlier, the size of this project, if there really are 50,000 people involved. And as you know, you may have to…you’re gonna have to interview 30 people to hire for each job. So you’re at a million and a half people, if that’s the case, so…

Andy: It’s a million and a half interviews, right?

Mark: …well, it’s a million and a half interviews, and it’s a million and a half qualified people. So to me, my personal opinion is only very, very large cities, labor draw areas, are gonna be able to satisfy that. So my understanding is…and the question will come up, is it’s being handled internally, and some companies, Patience, they do that. They have the staff and the capability to do it. And I believe that’s the case in this particular project.

Patience: What’s your take on it, Dennis?

Dennis: My take is, number one, this is not a trend. You know, it really is, in my opinion, for all parties involved, this is a grossly inefficient way to go about a site selection process. Very few companies will have the resource capability of doing this without doing any vetting…in my opinion, maybe there was some vetting done, but going out to 250 communities for headquarters when there’s probably less than a dozen areas that could really sustain the operation as envisioned is both unfair, it’s unnecessary.

Now, what are some of the positives? Some of the positives are that there will be some really creative ideas on how this location could work for Amazon. There’s no question about it, that’s one. Second, many regions of the country will have an alignment of their stakeholders. They will be more in harmony than they ever have before, that’s a tangential advantage. And there could be some consolation prizes for communities down the road, you know, be they…who knows, satellite offices and so forth.

But overall, the amount of resources that have been consumed by this both on a corporate side and certainly from an economic development side, to me, do not seem to be justified. And yet, most communities had to play in this game, there’s no question about it. And the resources probably would have been better expended on job creation that was real job creation activities in laying the groundwork for the future, because resources were diverted.

Mark: You know, in most projects that are worked in our profession, the issue of incentives comes about later in the process. The fundamental issues of the site location in terms of utilities or infrastructure or the ability to draw the people is most important.

And so, selfishly, we like to look at those things first. Because if we become inundated with proposals with various incentives and other economic development inputs, it’s background noise for sites that don’t even matter. They won’t work. So why go through it for that?

And I think maybe that’s what Dennis is inferring and I agree with that. Maybe there are other reasons this isn’t a normal site search. Maybe…I can’t speak for the company, I haven’t spoken to them about it. But maybe they have other desires. Maybe the media is positive. There sure is a lot of it. So maybe there are other things there, and that’s fine.

Patience: I was just going to comment that it strikes me that between HQ2, Foxconn, Carrier, that this might have been, you know, one of the biggest years for the site selection profession in the media in general. Does that ring true for you?

Mark: Well, the Toyota’s out there, too, right? And that’s become public…handled a little differently once it was announced they…you know, they’re having somebody help them with that. Yeah, I don’t remember…I’ve only been chair of the Guild for a year, but the phone rings once a week and Dennis…you know, for people wanting to talk about how this is going, and it’s never seen it before.

Dennis: Yeah, the only other analogies are, you know, some of the major transplant automobile plants started out with Mercedes…you know, clearly…I mean, they were, in a sense, shocked. But you know, there was a lot of specificity there. I mean, you had to be into an area where that site had huge infrastructure, either now or it had to get it done. So this wasn’t just, you know, throwing it up in the air, where are we gonna go? You know, there’s, you know, 300 places. I mean, you had to start vetting sites. And then, you know, you open it up to competition.

And of course, in that case, you know, the labor market is very important. But at that point in time, you know, going into Tuscaloosa, Alabama for Mercedes…quite frankly, they’re gonna be attracting workers from all around the country. I mean, you know, particularly in a downturn…you know, in the economy, you’ll have workers showing up on your door from almost every state in the country. So it was a little bit different. But that’s about the only analogous situation I can think of were the auto transplants.

Andy: Dennis, you said something interesting. You said you did not think this was gonna be replicated somewhere else. I’m curious, Mark, would you concur with that assessment?

Mark: I don’t think it’s gonna be replicated. Most of our clients want to conduct this process privately. They have reasons for that. They don’t want their competitors to know what they’re planning to inject into the marketplace, etc. So I think that that’s most of the market.

So I’m not saying that this won’t happen again, or I don’t think it’ll happen again, but it might be under the same parameters of…a bit of publicity or wanting that publicity. Because we go to great lengths with most projects to keep things confidential. Amazing lengths to keep things confidential. So this is counterintuitive relative to that.

Andy: Right, right. I mean, the one I would think of is it was the Boeing headquarters search which they kept it very…made it very public at the end. It’s like these three communities are competing…

Mark: Sure, sure.

Andy: …but they didn’t do it at the beginning, which is, you know, a big difference.

Mark: I’d rather evaluate three proposals than 242, you know?

Andy: Right.

Mark: Or I’d rather get to that point.

Patience: Yeah.

Andy: Right, right.

Patience: So I’m gonna take you again in a different direction to cover a broad topic in a short period of time. Let’s talk about foreign direct investment and what is likely to happen in that area in 2018. Dennis, we’ll start with you for this one.

Dennis: Foreign direct investment is gonna continue to be buoyant. My estimation is it’s about 15 to 18% of the market right now. There are many reasons well beyond Trump…it’s the fundamentals of the North American economy, especially the United States economy, and that’s gonna continue to attract companies from around the globe.

We will see…and it’s already begun, an acceleration of capital investment from Chinese companies establishing facilities in this country. It could be through joint ventures and partnerships, but a lot of it’s gonna be bricks and mortar. And believe it or not, Indian companies are beginning to make a toehold in the United States, and that’s gonna grow as well.

So China and India will become major players in foreign direct investment. China is ahead of the curve right now, India’s catching up. And India, it’s interesting, it’s both…I mean, if you just read the announcement of Infosys, you know, putting a major facility in Rhode Island. So it’s not just for India, it’s not just on the manufacturing side, it’s on the technology side as well.

And I think once the, you know…we’re seeing some level of activity from Brazil. Once that economy starts improving…it’s probably not gonna be next year, but you’ll start seeing companies from those kind of countries–Malaysia, Brazil, and so forth investing as well. In addition to our traditional partners who account for the bulk of reverse investment, be that Canada, United Kingdom, France, Netherlands, Switzerland, Germany.

Patience: Mark, would you agree that China and India-based companies are most investing in the U.S. right now…

Mark: They are…

Patience: …and likely to?

Mark: …and some of them are our clients, and clearly, their activity is increasing. Look, people used to come to the U.S…or in the past, a primary reason of coming to the U.S. is it’s a safe and good place to do business, and it’s the largest consumer population in the world. And that’s still true and that’s all still very positive.

One of the things I’ll point out that’s evolving is…and if you look at the case of where I live in South Carolina, if you look at BMW and you look at Volvo, both of them…BMW is exporting about 70% of what they make a year. Volvo projects to export about the same.

So foreign companies come here now not just to serve our market, but to serve our market and to serve markets around the world. And if you look in New York at the improvements made in the harbor here or in Norfolk or Charleston or Savannah, the access of ports, intermodal facilities that are being constructed to provide greater access is just making…is complementing all this. So I think we’re gonna see a lot more of it, too. I agree.

Andy: Just on that, go to international companies looking at investing in the U.S. for the first time, what’s the biggest mistake you’ve seen, or the biggest mistake that an international company looking at the U.S. for the first time would tend to make? Is there any advice you would have for someone looking at this for the first time?

Mark: Selfishly, I would say that they need a trusted advisor or advisors to obtain perspective that they don’t already have. I’ve seen situations where that perspective isn’t gained in the beginning and decisions are made which really don’t meet their fundamental goals.

So when you don’t know an area, it’s best…whether it’s in the U.S. or in China, I think you need somebody you can trust to either get you the perspective you need or find whoever else has that perspective. But that has to be there.

Dennis: The biggest concern I would have is companies doing this for the first time may not have the level of sophistication because they haven’t done this before. And so, it would be…being led to locations by incentive packages rather than looking at the critical operational factors that will make this successful when an incentive should be an enhancement, not the driver. And that’s a major pitfall for foreign companies.

Andy: So the incentive package becomes the shiny object that overtakes everything?

Mark: Absolutely.

Andy: That’s really interesting. Just on your comment, Mark, I…and some of this is the podcast we’ve done with companies. Sometimes, they have an advisor, but it’s the wrong advisor. They don’t really have someone who is qualified to be a site consultant. It’s a friend of a friend who they’re comfortable with, but it’s not really a…

Mark: There are two major qualifications I would suggest. One is they have the experience or they know how to find it. And the second is they’re unbiased. They don’t have a dog in the hunt except finding the optimum location and the best financial situation for their client.

Andy: Okay, good. Good. You both touched on the area of incentives. And between the two of you, you’ve been doing this…I don’t know, a long time; we’ll leave it at that. What changes are you seeing maybe in the last five years, and do you have any prediction of how incentives will change in 2018 and maybe even beyond? Just…talk about that because you have this perspective of a long period of time that you’ve been doing this.

Mark: I think something that is changing and has to continue changing about incentives is are incentives used to attract employees? It used to be, in my view, sort of a political driver. The more jobs you bring in, the more incentives you’ll get. And that’s fine. But companies aren’t so much looking for that now. They’re probably gonna be hiring few people, and they’re gonna be investing much more money. So they’re gonna want incentives maybe more so on their investment, their capital investment, and probably more so on training and workforce development because those they do hire have to be held at the higher level we’ve been talking about during this whole podcast.

Andy: Okay.

Dennis: There’s a major disconnect in the United States. And Mark is absolutely right. I still think that, you know, job creation incentives will be important because, you know, there still could be a substantial number of jobs and higher-paying jobs and that could be, you know, money.

Two things. One, incentives need to be performance-based, and more and more incentives are going to performance-based incentives, you know? Yes, maybe, in the, you know, the Toyota plant or something, there will be some substantial upfront grants. But by and large, you’ll see performance-based. Even grants will not necessarily be given; in year one, they’ll be spread out as metrics are meant by the company.

But on capital investment, we have been…the United States is now competitive globally because of the investments that U.S. companies have been making not just in manufacturing. And yet, almost all states that have investment tax credits, they’re credits that are not refundable. This is ridiculous. You know, so a lot of the employee-based incentives are refundable, they’re cash. Most companies cannot use their tax credits. So they’re not refundable, they’re not transferable. And that is a major disconnect.

So states really need to see the light and start rewarding companies for making capital investment, cash-based…you know, cash-based incentives. And they can’t be tied to substantial job creation, because oftentimes, there will not be a lot of jobs there. There will be high-paying and good-paying jobs, but they won’t be…you know, as historically as robust as they ordinarily would have been with the investment in technology.

So we need to incent our companies to be…to remain globally competitive. And that’s one way to do it and most states don’t do it.

Andy: I apologize for this question because I didn’t give this to you in advance, but I asked you earlier, what is the biggest mistake that international companies make in looking at an investment opportunity? I want to ask you…you both worked with hundreds of economic development groups. What is the biggest mistake an economic developer, an economic development group makes in interacting with a site selection consultant? And just limit it to your top ones here, since there could be many on this list, so…

Mark: The site selection consultant should be very valuable to the economic developer because the good site selection consultant has become one in alignment with their client. And they are the conduit to what drives the site location decision. So when that site consultant that has that awareness, interacts with the economic developer, the economic developer has to be very astute at drawing out the essence of what’s gonna make that project a success in their community. That doesn’t mean piling on all the information they have and the latest programs, because they may not pertain at all to the essence of what’s driving a decision.

So the biggest mistake is not using that site selection consultant and not drawing on sort of a needs-based selling perspective of what’s driving a project.

Andy: Okay. Dennis, you…I’m sure you have a perspective on this, too.

Dennis: Well, my perspective is that…you know, I’m amazed…I think the economic development profession is…I mean, it just improved leaps and bounds in terms of the quality of people, the technology, the information, the services provided, the involvement now in workforce, I think it’s terrific.

If there was one criticism I would have that is more common than it should be, is the lack of understanding of dynamics within target industries. And you know, I can’t tell you the number of times we go into a community…and it should be off the top of your head. If you’ve targeted a certain manufacturing sector, a certain office sector, you need to know who the players are, how their expansion’s gone, what’s their annual turnover rate? What are the wage rates? What are their HR practices? I mean, it is just amazing how little knowledge is related without a lot of additional research in industries that already comprised ecosystems within these communities. It’s very surprising to me.

So I think being educated on all industries, but particularly those that you have targeted, because a lot of times, we’re in an industy that is being targeted, to me, really, I think is important. And, you know, we’re paid to wade through that and get to an answer. But you know, there’s about 60% of site selection decisions that are not made by a professional site selection consultant.

So if you can’t be convincing to that audience, you have a good chance of losing prospects.

Andy: So “Know your product” is the takeaway there?

Dennis: It is “Know your product,” but especially in target industries and beyond just the physical dimensions of the industry…you know, where they’re located and so forth. But what has been their operational performance and then what has made them succeed in this community? And if I ask you, “What’s the turnover rate and employee turnover rate in companies…” now, you don’t have to necessarily give it for the company, “but in this target industry?” “Well, they’ve been running about 20% or whatever…” most of the time, I can’t get an answer.

Andy: Okay, okay. Yeah, sure. Go ahead, Mark.

Mark: I think the best economic developers are those that…as background, every community has assets and liabilities. And the most astute economic developers understand what their assets are and they understand what their liabilities are. Where they break from the pack is they figure out which companies or which sectors, like Dennis is saying, treasure their assets and don’t care so much about their liabilities, and they target those people. There’s no sense in fishing in a pond with no fish in it. They’ve got to target the people that love them for who they are and what they can provide. And understanding that going into the process seems simple, but it’s really not sometimes, and very important to their success.

Andy: I suspect you both have been in situations where a community has tried to hide its liabilities from you, from the consultants. And just talk about the impact that that can have on a site selection decision.

Mark: Well, in a general sense, whether it’s their hiding liabilities or hiding something else or not telling the truth, I can’t explain how Dennis and I have developed this ability to understand when something’s not real and there’s just something wrong. But that’s just part of how we help our clients. We have a sensitivity to that kind of thing. And we just have the radar and know when it’s there.

And if you…for about every client I’ve ever had and for my advice, if you can’t trust them, then you probably can’t trust them later, so let’s move on. So…

Dennis: It’s true, yeah. And of course, my one pet peeve is the current state of websites in economic development. I have to tell you that. Some are pretty good, but boy, I’d say…you know, two-thirds of them, I would rate a “C” or less, because they’re missing critical information.

And again, we’re paid to wade through that. But there’s 60% of the target audience that isn’t. So not having websites that have the critical information that companies need to move forward in a process is a major disadvantage still. And I don’t understand why because enough has been written and said about it. But it’s something that really needs to be addressed by [inaudible 00:52:35] agencies…

Andy: Just to pick up on that, I know you were deeply involved in the development of site selection standards…

Dennis: Correct.

Andy: …it just…it sounds like that has not been followed closely and….

Dennis: It has not been. To my view, there has not been…there really not has been a stick. There’s been a carrot but not a stick. But you’ve got to heed words, at least…and I have to tell you, a lot of companies do this on their own, and I do a lot of these site searches myself on weekends and so forth because…I have to do stuff like I’m here today; you know, I’ve got produce revenue.

So you know, man, I’m telling you, I go to a website and I go…the number one thing I want to see: major employers, I mean, a detailed list on major employers. I want to see who it is, the function, when they came into town, how many people do they have and so forth. And I get some listed, it doesn’t even…it may be a list. It may be 25 employers in an area with two million people, and I don’t even have headcount. I mean, it is just staggering. And I see this, and then I’m stymied. I can’t get that information til the following week. And I’ve got to write and I’ve got to get it, and they’ve got to send it to me…I mean, it’s just personally inefficient.

Andy: Okay. I think I have a final question…you may have another one as well, Patience, but we asked you to think about one major prediction for 2018. So I want you to imagine you’re sitting back around this table with Patience and I a year from today, what is something big that’ll happen in the site selection field in 2018? Anything come to mind, guys? Mark, you want to start with this…start with you on this one?

Mark: I think the Guild’s gonna be more successful than ever, Dennis. That’s my prediction. But to your point, look, Andy, I think the economy’s gonna continue growing. And I think however this happened and the discussion of Foxconn and Amazon and some others have really raised public awareness about this profession. And Dennis mentioned it earlier, we believe there are only 40 or 50% of the companies that are out there looking are using a professional. So I’m hopeful that more of them will use qualified professionals and make better decisions.

So I think investment is gonna continue, which I told you I don’t think would happen a year ago.

Andy: It’s interesting, we do a survey every three years of corporate executives. And when we did the survey in 2014, about 40% of people said they planned to outsource a portion of their next site search. We just completed the 2017 survey, and that number went up to 52%.

Mark: Very good.

Andy: So it does suggest that people are becoming more aware of the site selection field. Dennis, do you have a prediction you want to share with us?

Dennis: You know, it really relates into the whole area of talent. Artificial intelligence is still going to really interject a new set of dynamics in corporate America. I mean, we’re really…I mean, the upskilling [SP] process is in place, and this is for all industries, you know? And that’s gonna create a significant demand for these skills in these markets.

So you’re gonna really have to see much, much more robust workforce development programs. I think every economic development agency worth its salt needs to have a professional dedicated to workforce; that’s really key. And to be sure that all the stakeholders are aligned, and they have a metric-driven workforce development plan. And then I think what you’ll see, which is somewhat different these days, that in areas, companies that are not directly competing with each other for business will pool resources. And I think you’ll see almost what I call mass customization of training. Where you might get five, six, ten companies with similar skill requirements reaching out to the education and training, stakeholder community to develop programs where you can get scale and you can get new equipment and so forth, and you can have major impact for training not just on a silo basis one on one, but on a number…you know, with a number of companies that will be…demand and it’ll make these programs world-class.

So I think you’ll see pooling of training among companies together in markets of all sizes around the country.

Patience: One final question from me. You touched on the international markets that you think are, you know, investing in the U.S. the most and will continue to do so. What U.S. cities, states, regions are hot for investment right now, and in 2018?

Mark: I mean, for manufacturing investment, the Southern Belt is still hot. I think it will be hot. I don’t just mean the Southeast, Texas. We do a lot of work in Arizona. So I think that’ll be different there. In the headquarters market, I think we’ll be seeing cities like Charlotte…Nashville’s already picking it up. Cities that weren’t…we’ll see more regional headquarters. We’ll see smaller headquarters that’ll be attracted to smaller cities than Chicago or New York. So that’s gonna be a trend we’re gonna see much more of.

Dennis: I think…again, all geographies are gonna do well. Even in manufacturing. I mean, states like Michigan and Indiana have made an investment…

Mark: They’ve come a long way.

Dennis: …and write the work legislation…

Mark: Yep. Unbelievable.

Dennis: …and infrastructure and education. You’re gonna see that. Bottom line is that the geographies are gonna be extended because of the workforce. You know, we’ve got to get into areas where that…again, once the logistics and so forth have been determined, getting it to locations that have at least equilibrium and the kind of skills that we’re looking at is gonna be critical. So you’ll see a lot more focus geographically. And for the small communities, boy, they have got to promote their commute sheds. Not just their own individual counties, that’s key.

Last trend I would say is that it will be a continuation that you continue to see less and less of U.S. companies moving offshore to reduce costs and serve the U.S. market. More and more offshoring has been and will continue to be market access. Now, once a company determines what market…it’d be Eastern Europe…you know, Europe or China…even in China, you’ve now got opportunities to go inland. They may pick a lower-cost location to serve that market. But the reason for going will not be to reduce labor cost. It’ll be to gain market access. So that is a notable trend that really is becoming much more pronounced.

Andy: Mark, Dennis, thank you very, very much for joining us today and giving us a lot of great stuff to chew on here. Final plug for the Site Selectors Guild, it’s a great organization.

Mark: Thank you.

Andy: If you’re an economic developer listening to this, please get involved with their programs. If you are a corporate executive listening to this, we hope you’ll consider employing some of their firms and some of the individuals who are highlighted…44 individuals…

Mark: Forty-four now, that’s correct.

Andy: Okay, good.

Mark: Appreciate that.

Andy: But really appreciate both of your time and being so generous and sharing these things with both the corporate executive community as well as the economic development community.

Andy: So that is a wrap on the special episode of “The Project: Inside Corporate Location Decisions.”

Patience: A very special thank you to Mark Williams and Dennis Donovan for taking the time to do this podcast. The full transcript of our 57-minute conversation with Mark and Dennis is available on our website at aboutdci.com.

Andy: If you’re interested in learning more about the Site Selectors Guild, the organization’s website is www.siteselectorsguild.com.

Patience: And if you’d like to learn more about DCI’s database of more than 300 site selection consultants across North America, we’d encourage you to visit www.locationadvisors.com.

Andy: The Project is sponsored by DCI. We’re the leader in marketing crisis and observed over 450 different cities, states, regions, and countries. You can learn more about us at aboutdci.com.

Patience: It’s a new year and we’re hard at work at new episodes of The Project. Keep tuning in every other Monday, we’ll have a new episode of The Project for you. We hope you will keep listening, there are many more projects to come.